INVESTOR FINANCE
So , rather than asking whether you want a paid-off or a leveraged / financed portfolio , the question should be : What leverage or gearing ratio are you comfortable with ? In other words , what percentage of your properties ’ value can be debt ?
Younger people just starting out might be comfortable with an 80 %, 90 % or even 100 % -leveraged portfolio . In comparison , someone with a bigger property portfolio or nearing retirement would not want to exceed a 50 % gearing ratio .
One of the advantages of a paidoff property portfolio is that there is significantly less risk . However , your portfolio will be much smaller than when you gear , and you will also pay significantly more tax since your realised gains are much more . With a leveraged portfolio , your unrealised gains * are more .
* Capital growth on a bigger property portfolio that is not taxed while the properties are unsold , taxed at a lower tax rate if they are sold , and not taxed at all on any refinanced monies since debt is not taxed .
“ You will sleep better at night knowing you have healthy cash reserves for your property portfolio in your access or flexi bond , roughly 15 % of your properties ’ value or more .”
Keep in mind that cash is very important , not just equity . Equity will not help you much if you need cash , so rather convert your equity to cash by refinancing your properties . You can put the refinanced funds back into
48 NOV 2022 SA Real Estate Investor Magazine